Latin America’s Five Deadly Sins

As co-author of the 1997 classic The Manual for the Perfect Latin American Idiot, Peruvian journalist Alvaro Vargas Llosa brilliantly explored the Latin mind’s tendency toward statist thinking and anti-Americanism. Now flying solo, he grapples with important questions in Liberty for Latin America: Why is Latin America always the land of the unattainable future? Why have market reforms failed and real progress been so hard to sustain? Vargas Llosa is one of the most prominent of a small but vocal group of Latin American intellectuals who have long called for regional reform based on classical liberal tenets. These men and women have tried to turn their ideas into political reality, but they wage an uphill fight. Just in the last year or so, leftists have won presidential elections in Brazil, Ecuador, Nicaragua, and Venezuela.

Whether the political winds shift left or right, patterns of behavior in Latin America are still guided, according to Vargas Llosa, by “five principles of oppression:” corporatism, state mercantilism, privilege, wealth transfer, and political law. Of the five, political law, defined by Vargas Llosa as “power over the truth,” makes all the other principles possible. In Latin America, the interests of men always seem to trump the impartiality of the law.

Vargas Llosa claims these principles began during the Stone Age empires of the Aztecs and the Incas and were reinforced by the Golden Age empire of the Spanish. Their theological foundations were honed during the age of absolutism. No political movement in Latin America, not even the liberal republicanism of the early nineteenth century, has succeeded in eliminating them. Indeed, the republican tradition quickly gave way to the caudillo tradition, the rule of the strong, which in turn made the state illegitimate in the eyes of most. Even “institutional” revolutions, like that of Mexico in the early twentieth century, only ended up consolidating these “five deadly sins” by confiscating property and imposing other statist policies.

The results of these principles are national governments that cast their shadow over all economic activity. Wealth is not produced, but appropriated. Although Vargas Llosa deals with the problem of economic development, his book also treats fundamental political issues. Ultimately, in his view, the development problem stems more from the failure to establish genuine political authority and sound governance than from defective economic policy.

Most of the book critiques the much-heralded wave of liberal reform of the 1980s and 1990s that began with promise but ended in disappointment. Vargas Llosa writes that by the early 1980s, the political institutions throughout the region were at the point of collapse. Governments undertook liberal economic reforms—privatizing state-owned companies, lowering tariffs, fighting inflation—out of dire necessity rather than conviction. Unfortunately, these reforms were carried out within the context of the five foibles noted above. They were fundamentally statist approaches to economic problems. The export-led approach improved trade statistics, the author asserts, but failed to improve standards of living throughout the region. Without addressing the root of the problem, Vargas Llosa declares, these reforms became like “Florida stone crabs,” deformed creatures with high areas of development in one area, but serious underdevelopment in others.

One of the virtues of Vargas Llosa’s approach is its dissection of statism. Even reform movements in Latin America fundamentally have depended upon “top-down” state initiatives. It took authoritarian governments in Chile and Mexico to initiate two of the most successful of the economic reform initiatives in Latin America during the last three decades.

Vargas Llosa is right to address the problem of Latin America’s “five deadly sins” which are abundantly evident in the region’s failed institutions. Certainly he offers an appealing vision of what a free Latin America might look like. But if we take his explanation for granted that these principles of oppression have always been characteristics of Latin America, even in pre-Colombian times, then reversing the problem will be no easy task.

Liberty for Latin America presents a Whig interpretation of history in reverse—the Latin societies failed to liberalize their institutions, so real progress never occurred. This analysis might have been more persuasive if Vargas Llosa had diagnosed why Latin Americans failed to establish, after the early nineteenth century independence movement, legitimate and stable political authority, which would have done much to ensure the conditions for wealth generation. For example, after the American independence movement succeeded in establishing a new political authority, a strong union between the government and business interests emerged. Visionaries like Alexander Hamilton set the stage for economic growth by placing more emphasis on government action than laissez faire. Policies of tariff protection and low interest rates cemented the system. In contrast, Latin America depended on the vagaries of international lending and fluctuating prices for its exports, leading to dramatic boom and bust cycles.

According to economic historian Paul Bairoch, the United States experienced its most impressive growth during its nineteenth century protectionist periods. Likewise, the rise of Japan as an economic power was largely because of its protective ways. Superior human capital and a strong sense of commitment to national prosperity account for much of its success. The author might have considered why other East Asian nations, now booming, demonstrate these same characteristics. Apparently other societies with strong traditions of mercantilism, corruption, political law, and the rest can overcome these sins and prosper.

Throughout Liberty for Latin America Vargas Llosa suggests Latin American governments are a conspiracy by a small elite to enforce political law and preserve their economic advantages. If this were so, why does anyone with the means to do so in Latin America keep his money abroad? Chronic lack of trust in government, and the consequent unwillingness to invest locally, has been a huge obstacle to regional prosperity.

As Francis Fukuyama has suggested in his book Trust, Latin countries often demonstrate a “saddle-effect”—there are strong families and a strong state, but few strong intermediate institutions in between. Vargas Llosa might have bolstered his analysis by considering how lack of trust inhibits prosperity and contributes to his five principles. Likewise, Vargas Llosa comes off as too dogmatic in insisting that no reform is sufficient unless it conforms to classical liberal tenets. In fact, the liberal reforms of the last two decades in Latin America did decrease poverty somewhat. According to the sociologist Carlos Sabino, another leading light among classical liberals in the region, even halfhearted privatization and liberalization reduced poverty everywhere it was applied. Imperfect reform within the context of political law and the other deadly sins may be the best one can expect.

These defects aside, Liberty for Latin America is worth reading for its sound, if insufficient, diagnosis of the prosperity problem. We should note, too, that some changes might be in the works that are not state-initiated. At a recent conference, the eminent professor of Latin American politics Paul Sigmund remarked that when he started studying and visiting the region, all the bookstores were filled with Marxist texts. “Now all the books are ‘How to Start a Business,’” he quipped. In Venezuela, the economist and former World Bank official Gerver Torres became a bestselling author by offering a simple message: prosperity occurs through hard work and building human capital, not through accruing the benefits of the state.

If Latin America is to reverse its fortunes, it might be through ground level efforts like these that break a long established mindset and mitigate the ill effects of the five deadly sins.

Michael J. Ard is the author of An Eternal Struggle: How the National Action Party Transformed Mexican Politics (Praeger 2003), and he writes from Leesburg, VA.